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Nintendo to sell emerging market console from as early as next year

A man rides an escalator past Nintendo Co advertisements at an electronics retail store in Tokyo May 7, 2014. REUTERS/Toru Hanai
A man rides an escalator past Nintendo Co advertisements at an electronics retail store in Tokyo May 7, 2014. REUTERS/Toru Hanai

By Sophie Knight and Reiji Murai

TOKYO (Reuters) - Nintendo Co Ltd plans to introduce a new gaming system for emerging markets such as China as early as next year, as the company hunts for fresh opportunities after the flop of its Wii U console.

Weak Wii U sales left Nintendo booking a loss for the third straight year and intensified the clamor from investors for a change in tack as new consoles from rivals Sony Corp and Microsoft Corp reap market share.

Nintendo has dismissed calls to take advantage of a boom in games for smartphones. Instead, the company is developing hardware and games for consumers with lower incomes and less gaming experience than those in developed markets, Chief Executive Satoru Iwata told Reuters in an interview on Thursday.

"It would be difficult to enter those markets if we didn't create something new... For the mass market you need to provide something that most of the middle class can afford," he said, adding that Nintendo has no plans to launch existing consoles such as the Wii U or 3DS in emerging markets.

Iwata declined to elaborate on the design and specification of such a new device and did not specify the countries beyond China, saying only that "emerging markets" referred to those whose gaming potential had not yet been cracked.

In China, Iwata said Nintendo would enter with a different strategy to Microsoft Corp. The U.S. rival last month said it would begin selling its Xbox One console through a Chinese partner from September in Shanghai's free trade zone, after the government lifted a ban on the sale of foreign consoles there.

"We think the Chinese market has a lot of potential, but I don't think the lifting of the ban has solved all of the difficulties in entering it. We need to study it more... For us, Microsoft's approach wouldn't work," Iwata said.

The chief executive said he did not believe Nintendo could capture the mass market in China by offering a console designed and priced for a developed market.

TO WII OR NOT TO WII

Nintendo on Wednesday reported an operating loss of 46 billion yen ($452 million) for the business year ended March, after which its shares on Thursday fell 0.7 percent compared with a 0.9 percent rise in the benchmark index.

Shipments of the handheld 3DS console reached only a third of company expectations in January-March, while Nintendo sold just 2.7 million of the Wii U in the entire business year, well below its initial forecast of 9 million.

Since its release in November 2012, Nintendo has sold just 6.2 million Wii U, while Sony shifted 7 million Playstation 4 consoles within five months of its November 2013 launch.

The Wii U flop caused grumbles from investors and speculation that Nintendo would change tack to begin offering its games on smartphones and move to capitalize on its rich back catalogue of characters.

"Wii U never took off (worst second-year sales of any console in history) and 3DS has peaked. We forecast Nintendo will continue to suffer losses until it evolves faster," wrote analysts Atul Goyal and Yuki Maeda at Jefferies Securities in a note published after the earnings release.

"We believe Nintendo is moving in the right direction but very slowly," Goyal and Maeda wrote.

On Wednesday, Nintendo forecast a return to profit in 2014/15, saying it was counting on new game titles to spur higher sales of the Wii U.

The success of the predecessor Wii console means the company has enough cash to support it through a few years of loss: It had 795 billion yen ($7.82 billion) to spare as of March 31.

REDEFINING ENTERTAINMENT

Nintendo, which started out making playing cards, is looking to redefine 'entertainment' as it expands its product line-up, Iwata said.

"Everyone, including our own employees, thinks of us as a video game company even though Nintendo has been around for 120 years and the Famicom was only released 31 years ago," he said, using the Japanese name for the Nintendo Entertainment System, the company's first hit home games console.

"Nintendo is an entertainment company but I think we need to broaden the definition of entertainment."

Iwata said Nintendo's next generation of products would be oriented towards improving customers' quality of life, including a "non-wearable" offering mentioned in a presentation in January that will help customers stick to healthy pursuits. He declined to give further details.

Nintendo will also release a smartphone app to interact with games and showcase new games before the end of the year. The company has resisted investor pressure to make its games available on mobile devices, arguing such a move would damage the integral value of its characters.

Iwata said Nintendo will increasingly capitalize on the value of its characters, starting with the release of high-tech figurines in time for the year-end holiday season.

Details of the models, which will be able to send and receive data from games, will be announced at the E3 trade show in June. ($1 = 101.7150 Japanese Yen)

(Editing by Christopher Cushing)

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